PremiumEarly data for June suggests that the Indian economy has picked up pace after a lockdown-induced collapse in May, and that the economic damage has been less severe than during the 2020 lockdown. The regional impact has also been different from 2020.
Unlike in the first wave when the largest state economies lagged behind the rest of the country in recovering from the initial pandemic shock, they have recovered at a similar pace as other states this time. Almost all states were hit hard by the second wave, and almost all have seen a similar recovery in economic activity in June after witnessing a sharp contraction in May.
Among the fastest to recover are two large state economies - Uttar Pradesh and Gujarat - which bore the brunt of the pandemic in April - but have seen a drop in cases and a sharp rebound in economic activity since then.
Karnataka and Tamil Nadu reported the poorest figures, Mint’s state recovery tracker shows. Most southern states saw cases rising with a lag, imposed lockdowns with a lag, and are seeing a relatively slower pick-up now. Mint’s state recovery tracker looks at three high-frequency economic indicators—electricity use, vehicle sales, and mobility levels—to keep track of the performance of the largest state economies (those with at least 4% share in India’s gross domestic product or GDP). Mid-sized economies (2-4% of India’s GDP) and small ones (1-2% of India’s GDP) are aggregated for this analysis.
Economy Activated
The overall outlook improved in June not only because the number of covid-19 cases and deaths came down significantly but also because the rate of vaccination improved, raising hope and consumer sentiments. However, vaccination rates still vary widely across the country, with large populous states such as Bihar and Uttar Pradesh lagging far behind others.
Nationally, mobility levels rose by 24 percentage points in June after dropping to a 12-month low in May, reaching levels last seen in October and November. The annualised decline in electricity consumption compared to pre-pandemic levels was lower in June than in May. Vehicle sales after collapsing last month saw a sharp rebound, with 1.2 million registrations in June against roughly half a million in May. For comparison of electricity use and vehicle registration, a two-year timeframe is considered, with June 2019 as the reference period. This is to avoid the artificially depressed base of 2020.
Although vehicle sales saw a sharp sequential rise in June, the figures were still 15% lower than the same period two years ago. Karnataka, with a 51% annualized drop, was the worst on this indicator, followed by Kerala (40%) and Tamil Nadu (39%). Uttar Pradesh was the only state to see an annualised growth, albeit by just 1.1%. Small- and medium-sized states had a better showing than large states. Power consumption was lower by an annualized 1.4% since June 2019, lower than the drop of 4.7% in May. Gujarat (-1.3%) saw the smallest decline in June, closely followed by Rajasthan (-1.4%).
Mobility Up
As curbs were eased across states, mobility levels that had dropped to about half of pre-pandemic levels in mid-May jumped to 81% of normal levels by June-end. Among large states, Uttar Pradesh (94%) and Madhya Pradesh (88%) saw the highest public mobility levels.
Several districts in northern and central India are already seeing public mobility greater than pre-pandemic levels, Google data shows. States such as Bihar, Himachal Pradesh, Chhattisgarh and Uttarakhand had particularly high levels of mobility. While this could translate into a faster rebound in economic activity, this could also suggest widespread complacency, even in states where vaccination coverage have so far been scanty.
Large parts of Odisha and north-east, which are still reporting a higher number of cases, saw restricted mobility. Footfalls in public spaces were relatively lower in southern India as well, where state governments have been slower to lift curbs. Unlike last year, the largest six state economies—Maharashtra, Tamil Nadu, Uttar Pradesh, Gujarat, Karnataka and West Bengal— which contribute over 50% to India’s economic output, performed in line with the rest of the country.
States’ ability to contain the pandemic while relaxing movement restrictions, and the country’s ability to vaccinate all sections of the population in all parts of the country will be key to a sustained recovery. The current pace of vaccination does not suggest that the year-end target of vaccinating all adults will be met, making the country vulnerable to a devastating third wave.
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